On 17 October 2018, the Australian Senate referred an inquiry into credit and financial
services to the Senate Economics References Committee, with a report due by 22 February 2019.

The inquiry will focus on payday lenders, debt management firms as well as Afterpay
Touch Group (“Afterpay”) and its major competitor Zip Co. Further, as MortgageBusiness reports, the inquiry expects to cover:

“… whether current regulation of these service providers meets community standards
and expectations and whether reform is needed to address harm being caused to consumers”.

Background

Due to some parts of the finance sector escaping the scrutiny of the Royal Commission
into Misconduct in the Banking, Superannuation and Financial Services Industry (the
“Hayne Royal Commission”), Deputy Opposition Senate Whip and NSW Senator Jenny McAllister
proposed the new inquiry into parts of the finance sector that are often criticised
by consumer advocates as being either "... unregulated or subject to much less regulation
than banks ..."

(b) whether current regulation of these service providers meets community standards
and expectations and whether reform is needed to address harm being caused to consumers;

(c) the present capacity and capability of the financial counselling sector to provide
financial counselling services to financially stressed and distressed members of the
community; and

(d) any other matters.

The terms of reference include “buy now, pay later” schemes such as Afterpay. Currently,
these providers (also including Afterpay) are not covered by the National Credit Code (the Code is contained in Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth)).

Comment on the Inquiry

Clare O'Neil, Shadow Financial Services spokeswoman, said the Opposition wanted to
stop people entering a "spiral of debt" from expensive payday loans, and the inquiry
would look at the financial counselling sector's capacity to service this part of
the community.

“I have been speaking with Australians around the country who are victims of misconduct
by financial service providers … It is clear to me that there are a range of providers
whose conduct was not examined by the banking royal commission who provide financial
services to vulnerable Australians."

Gerard Brody, Chief Executive of the Consumer Action Law Centre, said clients frequently
had problems with multiple payday loans. Debt management firms often charged exorbitant
fees, he said, and were subject to no regulation. He was also quoted in the Sydney Morning Herald as saying:

"If you think the banks, insurers and superannuation funds are ripping people off,
they are nothing compared with the exploitative conduct of this sector of the marketplace."

"Our key concern is that buy-now-pay-later providers are not required to comply with
the same important consumer protections, in particular responsible lending checks.
Approvals tend to be instant and automated and we think this creates a risk of people
getting in over their heads … All forms of consumer credit should be subject to the
same obligations. There should be a level playing field between buy-now-pay-later
providers and other credit providers."

If they were to be brought under the consumer credit regime, providers of buy-now-pay-later
services would have to conduct responsible lending checks, which includes verifying
consumers' income and expenses, be part of an external dispute resolution regime soon
to be run by the Australian Financial Complaints Authority and offer hardship agreements
to consumers experiencing financial difficulties.

Statement from Afterpay

The Afterpay service allows customers to purchase an item and pay for it over four
equal instalments, due every two weeks, while there no interest is charged to consumers,
there is a flat $10 fee on a missed payment and a further flat $7 a week later if
the scheduled payment has still not been made.

In a statement made to the Sydney Morning Herald, Afterpay said it welcomed the opportunity to be involved, saying it promoted "responsible
spending." It said the “buy now, pay later” model was being applied inconsistently
in the market:

"Our model is unique in that we provide a free service to customers if payments are
made on time, we do not charge interest, our instalment periods are short, and if
payments aren’t made on time we immediately suspend a customer’s account which means
they will never be caught in revolving debt."

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